Canada's TMX looks to U.S. as next step in expansion

Fri Jul 13, 2012 7:31am EDT
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By Jennifer Kwan and John McCrank

TORONTO/NEW YORK (Reuters) - Final approval of a bid for the operator of the Toronto Stock Exchange opens the door to a bigger role for the new entity in the global exchange industry, with expanding into U.S. markets apparently first on the agenda.

TMX Group, which will control some 85 percent of Canadian stock trading after the C$3.8 billion takeover by the Maple Group, is already in talks to buy Direct Edge Holdings LLC, the No. 4 U.S. stock exchange, for up to $500 million, according to people familiar with the matter.

The Direct Edge talks highlight the strategy that Maple, comprised of major Canadian banks, pension funds and insurers, had in mind when it launched a formal bid for TMX a year ago.

"The exchange has the opportunity to become more important in the world of trading," said Michael Smedley, chief portfolio manager at TMX stakeholder Morgan Meighen & Associates.

Acquiring Direct Edge would let TMX boost its revenue on securities that are dually listed in Canada and the United States, said Sang Lee, managing partner at Boston-based research firm Aite Group. Trading of Canadian stocks in the U.S. market accounts for around half of all Canadian trading volume.

"My guess is TMX is looking at these numbers and thinking why not capture some of that revenue for themselves, as opposed to letting a U.S.-based trading platform win that market share and enhance their revenue," Lee said.


TMX Chief Executive Thomas Kloet, who will remain in the job after the Maple deal is completed this summer, has made no secret of wanting to expand globally once the Maple is complete.   Continued...